HOW TO INCREASE PROFITS:
A Step by Step Guide
Today I’m going to show you how to increase profits in your business by following 7 simple steps.
By implementing these steps you will witness the financial transformation and make more profit in your business.
These steps are based on my 16 years of working with clients ranging from £40k to £40 m in annual revenues.
So are you ready to go through my seven steps process to make more profit?
Let’s take a quick look at what these steps are first and then we’ll dig deeper into each one of them.
Contents
Chapter 4:
Build a Product Value Ladder
Chapter 5:
Reduce the Cost of Sales
Chapter 6:
Systemise Your Business
Chapter 1:
Get Financial Clarity
This is huge.
Question is?
How do you find financial clarity?
Use the 5 simple step-by-step strategies that I have shared below.
Imagine you’re a batsman playing in a cricket match and you’re doing well.
The challenge is that you don’t know how to read the score. It means that you are confused and are not able to perform at the highest level because of this confusion.
Despite scoring well, you don’t know whether you’re winning or not. You don’t know whether you should be aiming for 8 or 10 runs per over.
A business owner remains confused the same way if he does not know what the financial performance indicators (FPIs) are.
This happens when you don’t have any financial skills. You continue to run your business in a state of financial paralysis. But you neither take time to learn from financial skills nor you get an expert to help you.
You lack financial clarity. Without financial clarity, you don’t know where to focus on your business.
Imagine a scenario where you’re doing £200,000 in sales and £55,000 in profit.
But how do you know that the number is right? Just because the software says that doesn’t mean it is.
You need someone to check its accuracy. When you are sure about the numbers then you can rely on those numbers and say with confidence your current position. Based on that you can decide how far you can go and if you can afford to go fast or you need to go slow. This also guides you whether you need to do course correction.
If you don’t have financial skills or what I call foundations and you don’t want to learn them, then it is in your best interest to work with a financial coach because the coach will give you clarity.
The coach will give you courage. He will build accountability in your business. He will create a roadmap with the details about what you need to do today, and tomorrow to achieve your financial goals. He’ll show you the shortcuts that are not risky. He’ll build the road for you, even the bridges.
If your coach works with a lot of other businesses then he can also give you a community to talk to. Business owners, same as you, with their own diverse challenges and success stories. While talking with them, you learn from their mistakes and also follow their success by understanding what they are doing differently.
Let’s move forward with the scenario I shared above.
£55,000 in net profits at £200,000 in sales. And, you have £25,000 in expenses.
Let’s say that your net profit is £55,000 currently and you have the expense of £25,000 and this adds this to £80,000. Let’s say you operate on a 40% margin. So you have £200,000 in sales.
Let’s dig deeper into how you find financial clarity.
So whether you do it yourself or do it with the help of a coach, find clarity.
Clarity on your resources and expenses. One of the major expenses in the cost of sales. It will be in direct proportion to sales. You don’t have the cost of sales unless you have sales. Now, use your understanding of your numbers (including resources and expenses) to set S.M.A.R.T. goals. Articulate where you want to be in a year’s time, and what you need to do to reach there.
The first thing is being confident in the numbers and to know where you are standing where you are right now to where you want to be in a year or two in terms of sales and a profit position.
When you find this clarity it will be as if someone has cleaned your foggy eyeglasses.
Let’s dig deeper into how you find financial clarity.
Finding Financial Clarity
1. Know Your Margins
Margins are the key driver of the business so it is important that you find clarity on your margins.
2. Understand Fixed Costs vs Variable Costs
Categorize your expenses between fixed and variable costs. This will help you understand your risk exposure when times are not good.
3. Understand how much need to survive for the next three months
Calculate how much cash you need to cover your bills right now, as shown below, and also to survive for the next three months, if you don’t make any sales from today or your existing clients don’t pay you.
When you look at the sheet above you’ll notice the bank balance of £2,901 is greater than the current liability of £2,607, which itself is the sum total of accounts payable £1,602.67 and what you owe on credit cards (£1,003.73).
4. Know how your business is performing?
To find out the performance of your business, look at:
- Sales
- Profit Before Expenses
- Total Expenses
- Profit After Expenses
5. Look at these five key reports frequently
- Profit and Loss report
- Sales by Product / Service Summary
- Who you owe money to
- Who owes you money
- Balance Sheet (Your financial position)
Now that you have clarity about your finances, it’s time to get started on the next important step.
That is: operating your business as lean and mean as possible, and by keeping your expenses low.
Chapter 2:
Operate The Business Lean And Mean
Why is it important?
Because the game is not to make more money. It is to keep the money. The game is not about being rich and it is about staying rich.
We do it because we’re not in the business to only make sales, we also want more profits.
Use the ideas that I’m about to share with you, to do it.
To grow profits, we have to reduce expenses. We can control expenses more than we can control sales because sales are dependent on customers and we control how much we spend.
Controlling expenses gives you an easy win in your business.
Let’s say you are running a brick and mortar business that did £200,000 in sales in the past 12 months. You have a gross profit of £80,000, expenses £25,000 and a net profit of £55,000. So the gross profit margin is 40% and the net profit margin is 27.5%.
You are now thinking of ways to make your business lean and mean, by way of reducing expenses. After some thinking, you decided to get rid of brick and mortar operations and take your business online. By doing that, you are able to reduce the expenses from £25,000 to £21,000, by saving £4,000 on rent in a year.
If you plan this transition well by moving most of your sales online, then you can keep sales at existing levels while reducing expenses, and see an instant bump in profits. Profits that you can use the way you want, to reinvest in your business, to live a bigger better life, or to increase your net worth.
You not only reduce expenses from £25k to £21k, and grow profits. You also lessen the pressure on your business.
At 40% margins, you need to make a sales of £52,500 to generate £21,000 gross profit. For £25,000 gross profit, we need to do £62,500. So to offset £4,000 in expenses, a business will need to make £10,000 additional sales just to break even. When you look at these numbers in a bigger way like 10x bigger, then the additional sales for break-even will be £100,000. We are talking about an additional hundred thousand dollars more sales.
These are not the only benefits that come your way when you operate your business online. With an online business, you can source global talent at reduced costs and there is no employer’s national insurance to pay. So there is an instant saving of 13.8% on a salary after allowance for e.g. someone on £30,000 will make savings of £2,741.28.
Someone with five employees with an average £30,000 salary, will save £13,706.40.
Here is something else that I do to reduce my expenses and grow profits, that you can also do.
I scrutinize my bank statements every six months to find out if there are expenses I can get rid of and without affecting my day to day running of the business. Last time I did this exercise I saved over £1,400.
Apply these ideas in your business and run it as lean and mean as possible because it reduces the pressure to make more sales. And when you grow sales, your profits skyrocket because of your leap operations.
Once you have found clarity about sales and profits in your business and made a plan to make your operation lean and mean, then you want to set yourself a revenue or a sales goal.
Chapter 3:
Set Revenue Goal
Decide what you are aiming for and write it down.
“I’ll get to X amount by this date.”
How do we come up with the goal?
Use the strategy I have shared below to do it.
Traditionally to arrive at a profit, we use the following formula:
Profit = Sales – Cost – Expense.
That’s the usual method of looking at the profit loss statement or what I call a performance statement. The name ‘performance statement’ makes more sense for me because it tells how your business has performed.
Another model is to decide on a profit and take it out of total sales and use whatever remains. I am not a big fan of this model, because if you run your business with whatever is left, you may limit growth investments and hence the growth of your business.
Here is what you can do instead.
Work on a reverse engineering basis.
For example, a business with £200,000 (in sales), £80,000 (as the cost of sales) and £25,000 (in expenses) equals a profit of £95,000. We just work it backward.
So, in order to make £95,000 net profit, and if you run a business on £25,000 expenses, then you need to have £120,000 in profit before expenses and £200,000 in sales.
To make it work, you just need a switch of mindset.
Let’s say that someone doing £30,000 in profits says, “I want to grow my profits to £55,000. Based on my numbers I need to limit my expenses to £25,000, which means that I would need this plus £80,000 gross profit. I know my margins are 40%. It means I would need £ 200,000 in sales, to make £80,000 gross profit.”
Now we have revenue goals. We have a target to hit. Now we’ll build the whole conversation and everything that we do in business, around £200,000 sales.
Revenue Goal Exercise
Check out this revenue goal exercise below.
To set a revenue goal we work with the reverse engineering approach I shared above.
We don’t see profit as a by-product or the result of sales minus cost minus expenses (equals profit).
With this approach, we know where we are right now. And, we can figure out where we want to be and also how we can get there.
At the core, it’s all about working out your revenue or sales goal on a reverse engineering basis and linking it to profit.
So we have sales of £200,000 in a year and a gross profit of £80,000. That’s a 40% margin. Then we have expenses of £25,000 and we’re left with a profit of £55000 which at 28% is very healthy. Anything above 20% is healthy.
So now we’re saying, “I know where I am at the moment, I’m on £55,000 profit. How can I make £65,000 profit this year? How can I make £100,000? How can I make £150,000 profit in a year?”
That’s how we grow from one goal to another.
To reverse engineer this profit goal, we have to add the expenses. So we know that at the moment, we have £55,000 in profit. So if we add expenses to this, gross profit is £80,000. Operating at a 40% margin, the sales will come to £200,000.
When you clearly know you have a 40% margin, and you are operating at £25,000 expense levels, you know what to do next.
We’re saying, “Okay, so to make £10,000 more profit, what can we do here? Can we reduce expenses and get an increased profit on £200,000 sales? Or maybe improve our margins and reduce expenses slightly so that we arrive at a bigger profit.” That last point about profit is crucial because profit is the only thing that a business owner can take away from the business.
Sales play a huge part, and without sales, there won’t be profits. But they cannot take the sales. So, the goal is to maximize profits and move what you need from a business account to your personal account.
Having your personal needs met is not the only benefit of maximizing profits. If you are looking for investment for your business, profits are the key.
Because investors invest in the profitability of the business, not on sales-ability, I don’t even know if that’s a word in the dictionary. You know, they’ll not invest based on your sales. They will invest based on how much profit you make and can your business continue earning profits over time. Banks also consider a business’s profitability before they offer the business a loan.
Another reason to focus on profits is the fact that if you choose to sell your business at some point, then the valuation is linked to profit. The valuation is based on a profit multiple called EBIT, which is earnings before interest and tax. It is American terminology. EBIT allows investors to analyze the performance of a business’s core operations without the costs of the capital structure and tax expenses impacting profit.
For example, in the case of dental businesses, this multiple is 10 to 12. So if a dental business is making a profit of £55,000 / year, then at 10x multiple its valuation will be £550,000.
Many business owners don’t focus on profits as much as they should because they don’t have the financial know-how or financial literacy. When they get £200,000 in the bank account, they think it’s their money to take and spend more than they should. And, when the time comes to take into their personal accounts, they have none left.
Let’s take a step back and compare three scenarios. The worst case, best case, and usual scenario. We want to be in the dream position (the best case scenario) but most people land in the middle.
When I work with my clients I share these scenarios and give them three options. I tell them:
“There is nothing guaranteed in life because there are so many variables. But the thing is, let’s take it from the worst-case scenario for you. And if you’re okay with that, let’s go ahead.”
If you look at the spreadsheet above you’ll see that at £200,000 sales point, we are operating at 28% net margin, 40% gross margin, and 13% expense (25000*100/200,000). When scaling the expense can be 9% or 10% also.
When you know these facts and have fact fluency, then you can say, “Oh my expenses are 13% of what I’m selling. So it’d be a £100 sale, £13 is for expenses.”
So you know that you have the leverage to play with 87%. And, you can choose whether to invest it in marketing or growth or to bank it.
What if we want to aim for £150,000. And then, it is likely that we’ll reach £100,000. This year we made £65k for the same level of sales. It means less pressure, less headache, more free time for yourself and more time to think about growth.
We want to find out where we are right now to where we want to be and then we want to have financial clarity and that leads to a revenue goal.
This is a change from the usual approach because most entrepreneurs are focused on sales and on expenses. And for them, the profit is the result of sales minus cost minus expenses.
They don’t focus on profits. They just want more sales.
We want to look at everything from a profit point of view and list what sales we need to arrive at that profit we want.
The profit goal that you set should be S.M.A.R.T. (specific, measurable, actionable, achievable, and realistic). While setting this goal also look at resources.
If you are working with a coach, the coach will give you what they call conditions of success. So if your goal is to have a fit body and you are working with a coach. Then the coach will ask you not to worry about being fit. Instead, he’ll ask you to focus on the conditions of being fit. For example, you might want to work out five times a week or never drink or not smoke.
A financial coach will help you map out conditions to improve your profits, one of which can be dropping your expenses, from £25,000 to £21,000.
Or you can work to improve margin from 40% to 50%. So you would need to work on improving this using the strategies that we have.
If you work with a team then you need to share your revenue goal with them. And, also bring them onboard with a singularity of focus.
Noah Kagan of Sumo.com created an 8-figure business with a singularity of focus and everyone across the teams knew what that goal was.
So like Noah Kagan, you can say something like this to your team:
“Hey guys, you know, our focus is on making £150,000 profit this year. It really doesn’t matter how much sales we make. It might be £200,000 but we might improve my margin. We are already at 40% but if we take it to 55% or 60%, we’ll make more profits. At 60%, the gross profit will be £120,000.”
This way your team will support you in achieving your revenue targets.
Chapter 4:
Build a Product Value Ladder
You understood the importance of getting financial clarity.
You figured how important running your business lean and mean is.
And, you’ve set yourself a revenue goal.
Time to grow your sales by building a product value ladder.
How? I explain below
Let’s say that at the moment you are doing £200,000 in a year and want to improve sales by £40,000. How can you do that by using the resources you already have?
To do that, look at some key reports within the accounting system and you’ll know what to do next.
So within the accounting software, we have these reports called sales by product. Whatever you sell, this report gives you the sale by product or a service report.
To find out this report, go to reports and then select sales by product/service summary.
When you look at the above report, you will notice that between a particular period for Financial Year 18-19 (Apr 18 to Mar19), we sold production service (two units). We also sold two units per recharge. And we sold only one unit for planning and that represents nearly 50% of the sale. We sold one unit for £4560 and two units for £5,032.
This gives us an idea about our bestsellers. Imagine that it is a big list with lots of service items, some with 10, 15, 20, 30, or 45 items.
What can we do with this information?
We can use it to build our product value ladder. It starts with a tripwire, the low hanging fruit. With tripwire we want them to test our product and build trust in what we do. We don’t really make a profit with tripwire but we win the trust. That’s the job of this kind of product.
Then we sell our core product and then we sell profit maximizers. So these are the three types of products that we have. By offering this product value ladder, we first entice the customer and then increase the frequency of sales and the order value.
When we look within the accounting system, we can see hundreds of items that we’ve sold and if we sort this out by the quantity being sold, then we can find the best sellers which will also be the most popular products.
Based on the sales data we decide which one can be tripwire and what the core product should be, and what the profit maximizer product can be.
So, from the data in the spreadsheet, ‘planning’ can be a core product because it has the maximum unit price of £10,646. This is also a high priced item which new customers will not invest in the beginning. They would want to invest in something like ‘recharge’ listed at £516/unit. And an item priced even lower than this can be a good tripwire. Then we sell the core product ‘planning’, and then a profit maximizer for ‘design’.
These reports are from QuickBooks Online Dashboard. With these, we identify our bestsellers, and we also figure out the frequency of purchase. We find what people are buying and also figure out why they are buying it.
For example, if someone’s buying toothpaste and maybe one tube lasts for two weeks, then a customer buys it every two weeks.
If we see such a repeat purchase cycle for any product then we can schedule emails to prompt people to buy. That way we can increase the frequency of sales. That’s how successful eCommerce companies do it. By adding a tripwire product we improve the frequency of sales and entice the customer, and through the core product increase average order value.
For qualified leads, we can check ‘sales by customer’ summary within the accounting system. Let’s say this is by sector and then we have a sub-segment by income brackets. Then we know in this period for let’s say for a dental business, how much we have sold for different segments. This way we have clarity which type of customer segment is more profitable, where we’re getting most revenue from. So this way, we can identify customer segments with less hassle and where we have higher conversions.
We can do all this without making any additional investments. We can do this by going through our financials and looking at reports in detail. We can link the numbers we see to our commercial decisions. If we think through, the accounting dashboard can tell us what happened, why it happened, and what to do about it.
And, we can use it to build our product value ladder and grow sales without additional investments or hassles.
Chapter 5:
Reduce the Cost of Sales
So how do we go about reducing the cost of fulfillment?
How do you improve your margin and make even more profit?
That’s the next step.
Whatever we sell, there’s a cost involved in selling because sales do not happen by default.
We can reduce these costs by getting early payment discounts, negotiating trade discounts, and sourcing better suppliers.
This also improves our gross profit margin.
This is something that we do before we start investments in marketing.
There is something else that we should do before marketing. We should set up systems.
Chapter 6:
Systemize Your Business
The systems work even when we don’t.
Systems provide scale.
When we only rely on people to do the work, we are limited by the actions of those people.
Let’s learn how to set up systems to increase profits.
Let’s say that someone has been working for you for five years.
He has built a wealth of knowledge and know-how of the business. If this person leaves today then all his knowledge and his know-how that he gathered on the job, goes out the door the moment he walks out.
When someone steps in to take that person’s place, it’ll take a long time for that person to be in the position of the person who just left.
That’s why record whatever an employee does. Document in a way that anyone else can easily understand it. So when a new employee comes to take the place of an existing employee, there would already be systems of documentation and process in place.
Systemizing a business makes running a business easy regardless of where the business owner is in the world. All they need is a laptop and internet. Systems make that possible.
First, they can have data extraction apps, like Receipt Bank, Auto Entry or Bill.com. Such apps automatically pre-populate invoices and the supply bills with vendors and bank statements. There is no paper and everything is fed into the accounting system.
They could also use time management software. So managing the team, and managing themselves becomes simple. You could use project management tools like Harvest.
You could have payment portals like GoCardless and Stripe and to accept payment online. There are also expense management tools like Expensify.
You could also use import tools that pull transactions from the backend of Magento or Shopify.
We can actually import all the financial transactions, excel files, invoices, sales, credit notes, incoming payments, etc. All this information can be imported with the accounting software. It saves a lot of time just by having it in the system.
We implemented this for one of the clients and it saved them £60,000 a year in the first year itself. It’s been five years since and this has resulted in a saving of £300,000.
We can also set up systems for client on-boarding. We can get digital signatures. From within the accounting software, we could start invoicing the client. They can connect all the financial reporting as well.
By systemizing your business you’ll save a ton of time. It is not uncommon for business owners to save at least one workweek in a year.
Systemizing not only saves your time, but it also gets you information on a real-time basis. With real-time information, you don’t have to guess and rely on past historical information.
You can even build systems where all you have to do is run the custom reports and you’ll see all these custom-designed reports.
One of our clients, for whom we set up the systems, was doing £6 million at the time and now he’s doing £9.8 million. He is using the same number of admin staff and the accounting staff. So even after £3 million growth, he’s using the same resources and no additional overheads. The only difference is the systems we help them set.
Someone said to me if it’s worth doing twice, it’s best to systemize that thing, whatever that thing is.
If you prepare a report for clients regularly, you can systemise it.
- Either they have a growth mindset. So they want the system to scale.
- Or they want to have a system in place so that they can have a really good life, and live the laptop lifestyle. They can be anywhere in the world and their systems powered business can keep on running.
Now find your reason and do it.
When you have a system powered business you can be on the desk in your office, or you could be working from home in pajamas.
You could be running an online global business and have your team in five different continents talking to you through a single Slack channel. They could all be working from where they are, logging in information in an online project management system. They could be logging in their work and get paid accordingly. All client payments can be collected through a client portal.
With systemised client onboarding, everything is digitally signed. So when you want to see what’s going on in the business you can use financial reporting software.
By setting up systems you set yourself up for hassle-free revenue and profit growth. Once you do that, it is time to look at marketing as an additional source of business and profit growth.
Chapter 7:
Optimise Marketing ROI
After going through all the important steps that I shared earlier in this guide, time to bring marketing ROI to play.
There are multiple levers one can pull to grow marketing ROI.
By pulling these levers we maximize sales. We increase gross profit as well by looking at conversion and break-even cost per lead.
To optimize for marketing ROI by identifying profitable channels, campaigns, and customer segments.
How? Read on.
We invest in marketing to make more sales.
We do it by using the marketing maximizer metrics formula.
When you think about the long term value of marketing, you always don’t have to make a profit, but you can sell a more profitable, signature program later.
Before we move further, understand you need cash for marketing. You need to make an investment.
We’re not talking about organic growth here. We are talking about moving fast and scaling your business quickly. We’re talking about investing in marketing and running ads.
The model of keeping the profit intact does not work well here. Because what is left after sales – profit is used to run the business. If we adopt that model, after the fixed costs like rent, salaries, etc and there will be hardly a 20% margin left. So there wouldn’t be much room for a business owner to invest in marketing.
A better approach is to use a concept called break-even cost per lead. It is simple to understand. Let’s say that we sell products or services for £100 which costs us £70 to fulfill or provide the service to the customer. So our profit is £30.
Let’s say that the conversion is 20%. That means for every 5 leads 1 person buys. So if we devise a process to generate a sale at £30 (which is our profit per sale) then we’ll make a sale with no loss, no profit or at break-even level.
Now, here we need 5 leads to make 1 sale. So we need to generate 5 sales for £30 to break even. In that case, to break even our cost per lead will be £30/ 5 = £6. That’s our break-even cost per lead.
This means that we can spend up to £6 acquiring the new lead. And we won’t lose money because our profit margin is £30. If we have to buy the lead for more than £6, say for £7 or £8 then we’ll start losing money. Anything up to £6, and we won’t lose money and still gain a new customer for every 5 leads.
Without the knowledge of break-even cost per lead, you may lose money and never be able to scale. And when you know it you win.
That’s the power of break-even cost per lead. This is a lever that you can use to increase the number of your customers and eventually to grow your profits.
For example for the same product I discussed above, you can set a goal to gain 200 new customers. For that, you’ll need 1000 leads, and at break-even cost per lead of £6, you need to invest £6000, to generate these 200 new customers.
What if you don’t have this money?
Then you can borrow from your bank, or get an equity investor to invest. And you can be confident in knowing that you’ll not lose investor money and grow your customer base, and later you can sell higher-priced products to earn big profits.
With the power of knowing break-even cost per lead you can also explain it clearly to the banker and investor, as compared to randomly asking for money, without any data to back your claims.
For marketers reading this, this break-even product is your tripwire, that you use to get new customers to experience your quality and expertise and later you sell a signature program to them, where you rake in the serious moolah. And later we can sell a higher priced product because those people have already invested money in you. And so, so whatever you sell them afterward as long as you provide the value, they will invest in further.
Next time you could be selling something for 10x times the price of the tripwire and do you know how much the lead will cost you? Nothing. Zero. Because you didn’t have to acquire a new customer. You are only selling your higher price product to existing customers who bought tripwire.
And, your signature product in addition to being a high priced item (£1000 at 10x of tripwire) can also have bigger margins like 50%. We’re talking about the profit of £500 for one customer and we’ve got 1000s of them.
So you can have half a million or more than a million in profits. And, it starts by knowing your break-even cost per lead. This knowledge gives you confidence while avoiding the financial risk.
This confidence, clarity, and growth come from three things.
- Either they have a growth mindset. So they want the system to scale.
- Or they want to have a system in place so that they can have a really good life, and live the laptop lifestyle. They can be anywhere in the world and their systems powered business can keep on running.
Now find your reason and do it.
When you have a system powered business you can be on the desk in your office, or you could be working from home in pajamas.
You could be running an online global business and have your team in five different continents talking to you through a single Slack channel. They could all be working from where they are, logging in information in an online project management system. They could be logging in their work and get paid accordingly. All client payments can be collected through a client portal.
With systemised client onboarding, everything is digitally signed. So when you want to see what’s going on in the business you can use financial reporting software.
By setting up systems you set yourself up for hassle-free revenue and profit growth. Once you do that, it is time to look at marketing as an additional source of business and profit growth.
1. Fact Fluency
Once you know your facts then you can go as fast and as big as you want. You know that it costs you £6 to acquire a new lead, £30 to get a new customer for a product priced at £100 (with £30 profit margin), with an average cost of fulfillment at £70.
These are the facts. Someone running a similar business who doesn’t know their business as you would sweat at the thought of growth and borrowing £6000 because they don’t know the math. Whereas you could borrow £60,000 and know that you’ll be able to give it back. Because you know the risk.
Compare this to an approach where the focus is on keeping the profit intact.
That might be ok for a lifestyle business, or someone who just wants financial stability. But for someone looking for growth, it doesn’t work because you’re keeping the energy in your pocket and you’re saying, oh, I can’t move my hand.
It is like in a cricket match, you are not sending your top batsman to play, instead, you are sending tail-enders first because you want to protect top players for later. This is a sure-shot recipe to make your competitors win. And when you pull profits first your competition may race ahead.
We are growth-oriented so we adapt our marketing strategies, to improve sales. To do that, we need to know the facts, and knowing these facts is called fact fluency.
Next, is to test and invest.
2. Test and Invest
We don’t know until we test it.
So how do we really test it?
We test it by communicating.
Because by not communicating, we create silos.
Look at how many marketers and finance guys behave in the industry today. Marketers just talk about marketing and finance guys, they talk about only finance. They both work in silos. There is no coordination or communication between them. The exchange of marketing and financial information is nil.
This lack of communication is not good for business growth. That’s where the gap is. And that’s where most of the frustration is.
Many marketers just don’t know, they just look at the marketing dashboard and say,” Oh, this is the lifetime value of my customers and this is how much sales marketing is generating.” And then when they look at it properly, they notice that last year they were looking at profit and cash, and this year it is all gone. Then they say, “Oh shit, I don’t understand.”
It’s the same with the finance team who are like, why this number, what’s wrong with marketing.
That’s where the Profit Pioneer System comes in.
With this system, we fill this void, and we do all of this within the accounting system.
And let me show you how we can actually measure this within the accounting system, using a customized approach that I have developed. I haven’t come across anyone, in the UK or in the world who has a customized accounting system to do this.
So within the accounting system, we can have sales by customer segment. We can also have the sources of sales, which sales page or traffic source generated a particular sale. We can feed this information directly into the accounting system. So we can categorize the customer by two, three, or four different segments or any number of segments. We can segment by the industry, the income bracket, or by gender.
This system offers complete flexibility of how someone categorizes those. It is powerful for them because they want to find out the most profitable customer segment. So that when they start marketing they can target the right audience and not just any client who wants to work with them.
The customized report within the accounting system gives you insights from any period. You don’t need to look at the marketing dashboard for this. You get a distilled report within the accounting system that tells you who’s my best type of client. You don’t need to look at three or four different systems to do that. The best part is, it not only tells you who’s the salesman, the best customer segment, it also tells you the profit and loss by customer segment. And you see how powerful is linking the cost and expenses element to the sales as well.
With a system like this, you can see where did you find a customer? Did you find him on Facebook, Twitter, YouTube, or via Google ads, or referrals?
We can see that when you start calculating the breakeven cost per lead and we go deeper and deeper and we were like, okay, so if we do this marketing campaign in Facebook, our breakeven cost per lead is £5 as opposed to £10 Google ads and nothing in YouTube.
Then we get to this point, we think about the cost and quality of the client.
We can do all of this within the accounting software and that’s the beauty of it. You can just bookmark this. All you have to do next time is to click and run a report. That’s it. You get this report at the touch of a button. Once you’ve set it up and you can see this, all of this within the accounting system and with no need to look at the marketing dashboard.
The marketing dashboard offers so many data points, how many impressions, how many new subscribers, how many email lists. Well, how many of them turn into the sales page? That’s a crucial KPI there. So we don’t capture vanity metrics in the accounting system. Only the metrics that matter.
To summarize:
- We identify the breakeven cost per lead.
- We develop the understanding that we call fact fluency. When you know the facts then you say, “Well I don't know the process from here? All we can do is test and invest.”
- Then we test to see if something works or doesn’t. And based on the findings of the test, we invest.
We do this testing across different social media channels, through different campaigns and run A/B tests.
All this is aimed at helping entrepreneurs grow and save time.
When done right, you can have your KPIs set up with less than 10 reports. These reports will tell you everything that you need to know about your business from a marketing and from a finance standpoint.
You spend 10 minutes looking at the finances from every single aspect and get a complete picture of the profitability in your business.
That’s it!
Thank you for investing time in going through the profit growth strategies in this guide.
I am committed to helping anyone who wants to grow their business and even if after going through these strategies, you feel confused or unsure, reach out and schedule a 15-minute chat with me using the link below.
To a future where you would have implemented all these strategies and have seen your profits soar.
About The Author
Who Is Shishir Khadka?
Shishir Khadka transforms businesses to master cash flow and achieve financial freedom. His strategies have helped an e-commerce client that grew from £500k to £1.6m in just four years – a journey chronicled in his book “The Three Key Obstacles to Faster Growth: How You Can Overcome Them Using Cloud Accounting.” He also achieved 220% growth for a retail client reaching £53.8m annual revenues.
A chartered certified accountant (ACCA, 2007) with over two decades of experience, now turned cash flow specialist, Shishir also founded Hungry Cash Flow software and created Cashflowpedia,- the world’s most comprehensive cash flow resource online. He holds bachelor’s degrees in applied accounting from Oxford Brookes University (2005) and business studies from Roehampton University (2002).
Shishir is dedicated to helping ambitious entrepreneurs in retail, dental practices, and marketing agencies, sharing his proven strategies through Cashflowpedia, masterclasses like his Zoho presentation, and features in The Independent and Floatapp.
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